It costs $1,000 to enter the following game of chance,which is based on the outcome of a coin toss (fair coin).If the coin comes up 'heads' then you win and walk away with $1,100,which is a 10% rate of return.If the coin comes up 'tails',then you lose and walk away with $900,which is a -10% rate of return.What is the variance of the returns?
A) 0.05
B) 0.1
C) 0.09
D) 0.01
E) 0.5

Question

Quizplus · Accepted Answer

Expected return = E(k) = Pr₁k₁ + Pr₂k₂+ ... + Pr_nk_n Expected return = (0.5 × 0.1) + (0.5 × -0.1) Expected return = 0.00 or 0% Next, use the expected return to calculate the variance: 0.50 × 11ea7fdb_fc12_b0b1_a768_bf18424ba3d9_TB2902_11 + 0.50 × 11ea7fdb_fc12_d7c2_a768_e31de08cad50_TB2902_11 = 0.01

It Costs $1,000 to Enter the Following Game of Chance,which